Rates are DOWN!

This week, we experienced the sharpest drop in mortgage rates this year.  The average 30-year fixed rate dropped to 6.35% from 6.5% last week according to Freddie Mac.  Since late 2022, rates have generally ranged between 6.5% and 7.5%, so this week’s figure represents a low point.

Last week’s employment report indicated that 22,000 jobs were added in August — far lower than economists’ forecast of 76,500 new jobs.  The weaker-than-expected labor market suggests that the U.S. economy is slowing much more dramatically than previously expected.

At the same time that the economy is slowing, inflation is picking up steam with the Consumer Price Index (CPI) rising 2.9% year-over-year, up from 2.7% in July.  Significant increases in costs for fuel, food, and airfare, along with the current administration’s tariff policy are factors contributing to this increase.  Higher inflation can place upward pressure on interest rates.

Regardless of inflationary concerns, it is widely expected that the Federal Reserve will aggressively cut interest rates to support the economy.  The bond market has responded.  The slowing economy and anticipated Fed action have lowered the yield on 10-year Treasury securities to 4%.  

Note that the Fed does not set mortgage rates, but anticipated and actual actions by the Fed do affect 10-year Treasury yields and mortgage rates generally track that yield.

Will the real estate dam break?

Nationwide, the real estate market has been slowing, favoring buyers.  In Northern Virginia, average days on market grew to 25 from the prior month’s figure of 20, while also exceeding August 2024’s average of 17 days.  Also, average sold price as a percentage of list declined to 98.5% from 99.7% in the prior year.  Although these shifts favor buyers, we would still describe the current market as “balanced”.  By historical standards, an average days-on-market of 25 remains low.

Despite the weaker market, inventory remains low.  We attribute this to homeowners who are “locked in” by low mortgage rates.  Homeowners who would otherwise consider a move don’t wish to trade their existing 3% mortgage rates for the 6-7% rates they’d incur on a purchase.  Even though such homeowners may have a personal incentive to move (upsizing, downsizing, or changing location), the increased costs of a higher interest rate represent a strong barrier.

However, we anticipate that further drops in 30-year fixed rates from the current 6.35% to sub-6% rates have the potential to change this.  Although a theoretical 5.75% rate is well above a homeowner’s existing 3% rate, we believe that many homeowners may declare this rate as “close enough”.  If such homeowners accept the possibility that 3% rates might not be seen again, a 2-2.5% delta between an existing rate and a new rate may be deemed an acceptable cost of moving to a home that better suits their lifestyle.

If these lower rates come to pass, expect dramatically increased real estate activity with more buyers and sellers entering the market, yielding far more choice for buyers.

Hire the area’s best Realtor for less.

Get to know Michael Gorman, our fully-licensed principal broker.  Far more than a mere real estate agent or salesperson, he boasts 24 years and $2 billion in transaction experience.  He’s a former senior executive of Long & Foster / Berkshire Hathaway and holds an MBA from Harvard.  When you hire RealtyPeople, you get Michael’s personal service and expertise while potentially saving $10,000 or more.

Learn about our full-service $500 + 1% commission plan.  We’d be happy to set up a free no-obligation consultation.  Email us at mike@realtypeople.com or call us at 703-951-3301.

Michael Gorman
Managing Broker
703-951-3301
mike@realtypeople.com
realtypeople.com